RI 'still attractive' for oil and gas investment

JAKARTA (JP): An official at state oil and gas company Pertamina said on Wednesday that the country's oil and gas potential and the incentives offered by the government for their development meant Indonesia was still attractive for investors.

"I believe the current oil and gas contractual terms and the incentives are still applicable and the government does not need to introduce new incentives for the development of the country's oil and gas resources," Zuhdi Pane, an expert on the staff of the Pertamina president, told The Jakarta Post in his personal capacity.

Zuhdi is also Pertamina's chief negotiator in discussions with oil and gas contractors applying for production-sharing contracts (PSCs).

The country's oil and gas contractors, realizing that Indonesia desperately needs earnings from the oil and gas sector to cope with the monetary crisis, have recently raised their longstanding calls for greater incentives in order to boost oil and gas exploration in the country.

One of the demands is that they be allowed to consolidate taxes from several oil and gas blocks in order to minimize exploration risks.

Under the current contracts, each block is treated by the government as a separate entity. As such, contractors are not allowed to set expenditure in unproductive blocks against revenue from productive areas.

Contractors are also calling for incentives to encourage the exploitation of fields with small oil and gas reserves, known as marginal fields.

In general, a field with oil reserves of less than 10 million barrels is considered marginal but fields with reserves of up to 20 million barrels can also be considered marginal if they lies in deepwater basins because contractors can only expect a small profit for their labors.

Minister of Mines and Energy Kuntoro Mangkusubroto has rejected the tax consolidation proposal out of fear of losing too much government revenue from productive blocks, but he is considering giving incentives for the exploitation of marginal fields.

Kuntoro has said the government will hold a seminar in February to get feedback from the industry on possible incentives as it expected to formulate an incentive package by mid-1999.

Leon Codron, president and resident manager of Atlantic Richfield Indonesia Inc., a subsidiary of Atlantic Richfield Co. (ARCO), has said some half a billion barrels of Indonesia's known oil reserves were sitting in fields currently too small for viable development.

The government and Pertamina have launched several incentive packages to encourage oil and gas exploration in deepwater and frontier areas.

The government cut its oil split to 65 percent for deepwater and frontier areas from 85 percent in conventional areas and its gas split to 60 percent for deepwater and frontier areas from 70 percent in conventional areas.

Schemes

Zuhdi said Pertamina, in response to the contractors' call for incentives for the exploitation of marginal fields, had long offered several schemes, including interest recovery and investment credit to make marginal field exploration profitable for contractors.

Under the interest recovery scheme, which is offered to contractors in case they experience cash flow problems, Pertamina allows contractors to borrow money from banks for the exploitation of the marginal fields and then the government reimburses part of the loan's interest.

In comparison, under normal contracts, the government does not reimburse the interest on contractors' loans.

Under the investment credit scheme, Pertamina will give greater reimbursement to contractors for their capital spending in marginal fields than in fields with large reserves.

But, Zuhdi said, contractors had thus far rejected the offer, demanding instead that incentives for deepwater and frontier areas be also be applied in marginal fields.

"Pertamina has rejected the demand because such a demand, if fulfilled, will greatly reduce the government's earnings from the fields," Zuhdi said.

"We are seeking to comply with the Constitution which says that the country's natural resources should give maximum benefit to the people. Moreover, in this time of crisis, we are seeking to maintain high earnings from the oil and gas sector."

Zuhdi brushed aside fears that oil and gas contractors would leave the country if their demands were not met, pointing to the fact that Indonesia had awarded about 92 contracts over the past five years, including 56 PSCs. The 56 PSCs are mostly for the exploration and exploitation of frontier and deepwater areas.

"Thank God for giving our country a wonderful structure for oil and gas exploration, compared to other countries. That is why, although other countries give greater incentives than us, contractors keep coming to our country," Zuhdi said, adding that contractors get a 50 percent gross return on their gross investment in the country.

The fact that the country has wonderful geological structures for oil and gas is proved by the high success ratio of explorations, he said.

Of the US$92.98 billion spent by contractors on exploration in the country from 1966 to 1997, only 3 percent or $3.18 billion pertained to contractors who failed to find oil and gas and relinquished their contract areas to Pertamina, Zuhdi said. (jsk)